The Global Risks of America’s “Most-Favored-Nation” Drug Pricing Policy

The U.S. government’s reliance on the most-favored-nation (MFN) pricing model — tying drug costs to the lowest price paid by other countries — is a politically appealing but structurally flawed solution.

At first glance, pegging U.S. drug prices to those in other wealthy countries sounds like common sense. But the MFN approach invites serious legal, economic, and ethical complications. It could disrupt global access, deter innovation, and obscure the deeper systemic issues in American health care.

The United States has long paid significantly more for the same prescription medications than other high-income countries, raising persistent concerns about international price disparities. On May 12, 2025, President Donald Trump signed Executive Order 14,297, directing the adoption of an MFN pricing model for prescription drugs. Under this policy, drugmakers must match or beat the lowest price paid by countries such as Canada, Germany, or France, or face regulatory penalties. But while it promises short-term savings for U.S. patients, the long-term effects could be legally fraught and globally destabilizing.

This isn’t Trump’s first attempt at MFN-style pricing; a similar executive order was issued in 2020, though it faced legal pushback and was never fully implemented. Other countries use reference pricing too, but most of the high-income countries generally use centralized or public-oriented health systems that make it feasible.

Legal and Trade Implications

Tying drug prices to international benchmarks opens the U.S. to accusations of coercive trade practices. Countries whose low prices are used as baselines may face diplomatic pressure to raise them — especially if American pharmaceutical companies begin lobbying for tariffs or regulatory retaliation. This poses a risk of inciting trade disputes, potentially contravening World Trade Organization (WTO), particularly under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which protects pharmaceutical patents and market-based pricing.

Pharmaceutical companies may also challenge MFN pricing domestically, citing due process concerns or even alleging uncompensated takings of their IP value. Already, President Trump’s 2020 version of the MFN rule faced multiple legal challenges that stalled implementation. Moreover, MFN pricing effectively imports the price control mechanisms of foreign countries without adopting their broader health system structures.  This selective approach is economically incoherent and legally vulnerable, as drugmakers argue U.S. law doesn’t permit using foreign price references without proper analysis or safeguards.

Global Health Equity and Patent System Abuse

If pharmaceutical companies are forced to accept lower profits in the U.S., they may try to compensate by raising prices in markets that currently benefit from lower-cost drugs — particularly in Europe and parts of the Global South. This undermines global health equity, as countries with universal health care systems or limited budgets could see diminished access. In essence, the U.S. would be exporting its high-cost model, potentially turning an American pricing reform into a global affordability crisis.

MFN pricing does little to fix the structural drivers of inflated drug costs in the U.S. — most notably, patent system abuse. Pharmaceutical companies routinely exploit the U.S. patent regime to extend exclusivity periods through minor modifications to existing drugs (so-called “evergreening”). This practice delays the entry of generics and biosimilars, keeping prices artificially high for consumers and payers.

Unlike many peer countries, the U.S. lacks strict patent linkage reviews or centralized pricing commissions that evaluate therapeutic value. Consequently, manufacturers can maintain monopolies for decades, while offering marginal clinical improvements at premium prices. MFN pricing may lower the reimbursement ceiling, but it does not challenge this underlying business model … one that thrives on regulatory fragmentation and patent stacking.

Innovation-Chilling Effect

Proponents of MFN often downplay its impact on innovation, but the economics are unavoidable. Pharmaceutical R&D is high-risk, capital-intensive, and largely profit-driven. If revenues shrink sharply in the U.S. (currently the world’s most lucrative drug market), companies may delay or scale back investment in new treatments. The threat isn’t immediate, but over time, reduced profitability can shift priorities away from developing breakthrough therapies, especially for rare diseases or conditions affecting smaller populations.

When Pfizer-BioNTech became the first to release a breakthrough COVID-19 vaccine in late 2020, the U.S. paid roughly $19.50 per dose — up to 40 percent more than some European countries. That premium pricing helped secure early access and mass rollout, a clear case where high prices arguably supported rapid innovation and deployment. If MFN pricing forces companies to charge U.S. patients the same as countries with centralized price controls, the incentive to prioritize U.S. distribution — or to invest heavily in future breakthrough therapies — could erode. Over time, this may delay medical advances, especially for high-risk or low-demand treatments.

Structural Evasion, Not Reform

Most troubling is that MFN pricing skirts around the real drivers of inflated U.S. drug costs. Pharmacy Benefit Managers (PBMs), who act as middlemen between drugmakers and insurers, often negotiate secretive rebates and fees that obscure true pricing. Medicare, the largest government payer, still lacks full authority to negotiate directly with drug manufacturers. And U.S. patent law allows excessive extensions that delay generics from entering the market. MFN pricing doesn’t fix these systemic failures — it simply masks them by borrowing prices from abroad.

By relying on foreign price controls instead of reforming its own supply chain, the U.S. risks short-term political wins at the expense of long-term global stability and domestic transparency.

Conclusion: Real Reform Requires Structural Change

MFN pricing is a shortcut masquerading as a solution. It borrows foreign prices without replicating the transparent, centralized systems that make those prices sustainable. More importantly, it fails to confront the core issues inflating U.S. drug costs: patent system manipulation, PBM opacity, and Medicare’s limited negotiating power.

To create lasting change, the U.S. must:

• empower Medicare to negotiate directly with drug manufacturers;
• reform patent law to close evergreening loopholes and shorten exclusivity periods;
• increase transparency in PBM contracts and rebate schemes; and
• support generic and biosimilar competition through active policy incentives.

Only then can we build a system that promotes affordability without undermining equity or innovation — at home or abroad.

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About the author

Ganeswar Matcha is Managing Director at Sacha Group LLC and a legal researcher in international environmental and health law. He holds an LL.M. from American University Washington College of Law, and his work spans pharmaceutical trade, climate policy and maritime governance.